A reminder that all loans might not cover all properties — for instance, FHA 203(k) loans are typically used for single-family properties, although other structures may be covered if they fall under certain restrictions — or the dollar figure you want, so make sure you search for the loan product that serves your needs.
What Is a Home Improvement Loan?
With a cash-out refinance, you use some of the equity in your home to get cash. In this refinancing option, you change the terms and amount of the loan, replacing your previous mortgage with a new one (so it’s not a second mortgage like with a home equity loan). You tap into some of the equity you’ve built up — the amount you can borrow is typically capped at around 80% of your home value — to get access to cash and a new fixed-rate mortgage. (Note: You’ll have to pay closing costs with this option.)
Why You Might Want a Home Improvement Loan
When you’re shopping around for lenders and home improvement loans, there are lots of items for you to consider. Here’s a shortlist of what items you want to review and consider when researching home improvement loans:
- You require a large amount of funding. Sometimes a home reno project requires money you just don’t have (or can’t save for in a reasonable amount of time before you start a project).
- It’s an emergency. If you’re on a tight timetable or an urgent need has popped up, home improvement loans might be the best option for your situation.
- You want to pay a little bit over time. Perhaps you’d prefer to borrow funds and spread the payments out versus dropping a good chunk of change down all at once.
K to 0K
Secured Loans vs. Unsecured Loans
Exact requirements will vary by lender and loan type. In general, you’ll need some combination of the following:
- Secured loan: This type of loan requires collateral, like a home. Since the borrower is putting up an asset, a lender typically views lending this money as less risky. A mortgage is an example of a secured loan.
- A secured personal loan is generally easier for a borrower to get.
- Secured personal loans tend to have lower interest rates.
- Unsecured loan: This type of loan doesn’t require collateral; rather, a person’s creditworthiness helps a lender determine whether or not they should lend someone money. A student loan is an example of an unsecured loan.
- An unsecured personal loan might be more difficult for a borrower to qualify for.
- Unsecured personal loans tend to have higher interest rates.
6 Types of Home Improvement Loans
Alternatively, if you have good credit, you could apply for a new credit card and likely get approved in a short period of time. Depending on your creditworthiness, look for a credit card with an introductory 0% APR for a set period of time (one year, 18 months, etc.) before the higher interest rate kicks in. That way you can pay the expense off over time if you need to, which is a money-saver in itself considering the average credit card APR hovers around 20%.
1. Credit Card
Best for Borrowers Who Want Options
If you prefer a traditional bank with brick-and-mortar locations, Wells Fargo might be your preferred choice. If you’re OK operating entirely online, a lender like SoFi will likely meet your needs.
2. Personal Loan
Many lenders require a minimum credit score to qualify for a home improvement loan. For example, you typically need a minimum credit score of at least 620 to secure a home equity loan.
More Information About Navy Federal Credit Union
3. Home Equity Line of Credit
4. Home Equity Loan
3.5 out of 5 Overall
5. Cash-Out Refinance
Discover is probably most known for being a credit card brand. But, the company also offers online banking accounts and products, and a variety of loans (on top of many credit cards, of course). Discover has a highly rated mobile app, over 60,000 fee-free ATMs and a quick interactive quiz on its website to help users find the best bank account for their needs.
6. FHA 203(k) Rehab Loan
Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former editor and marketer at The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.
Ultimately, the best home improvement loans or funding will depend on your qualifications, needs and availability. (Per the latter, some institutions have halted greenlighting HELOC loans with the current market in flux.) Of course, you will also want to consider personal loan rates, any origination fees, repayment terms and other factors when choosing how to pay for any home improvement projects. (Which we’ll touch on later in the article.)
|Lender||Best For||APR||Apply Online|
|Wells Fargo||Borrowers Who Want Options||5.74% to 19.99%||Yes||GET DETAILS|
|Navy Federal Credit Union||Military Community||7.49 to 18.00%||No||GET DETAILS|
|Discover||Customer Support||4.15% to 8.99% (for first liens)||Yes||GET DETAILS|
|SoFi||Borrower-Friendly Terms||5.74% to 21.78%||Yes||GET DETAILS|
|Upstart||Borrowers With So-So Credit||5.22% – 35.99%||Yes||GET DETAILS|
5 Best Home Improvement Loans in May 2022
Best for Borrower-Friendly Terms
- Same-day funding
- No prepayment penalties
- No collateral required
More Information About SoFi
- Credit score isn’t the major qualifier
- No down payment and no prepayment penalty
- Funds are available the next business day
Discover offers home equity loans and mortgage refinance options to consumers. For home equity loans specifically, borrowers have access to fixed monthly payments, up to several hundreds of thousands of dollars in loan amounts and SoFi is one of the newer, savvier financial institutions on this list with an impressive scope of offerings and as of January 2022 is a chartered bank. SoFi offers the traditional banking products, plus lots of member benefits such as a referral program, member rewards and career coaching.
For each lender, it’s essential that you review the different loan options and terms for more information.